READING THEmany stories based on the giant leak of documents from Panamanian law firm Mossack Fonseca — notorious for its prolific creation of shell companies to hide assets of wealthy malefactors — you might well ask: How much tax revenue do the world’s governments lose thanks to this kind of financial engineering?

According to The Hidden Wealth of Nations, a recent book by University of California, Berkeley economist Gabriel Zucman, the answer is that tax evasion costs governments approximately $200 billion per year.

Zucman also estimates that tax avoidance by U.S. corporations — which, unlike tax evasion, is generally carried out in the open and is technically legal — costs governments an additional $130 billion per year. (European and Asian corporations have the same incentives to avoid taxes, but there is not enough data to estimate its scale.)

So as a result of all the different schemes like the ones being unveiled by the Mossack Fonseca leak, governments around the world are dealing with at least a one-third of a trillion dollar annual shortfall that must be made up by cutting spending, borrowing, or taxing the rest of us more than they should.

To understand how this works, read this article about Uganda based on the Mossack Fonseca leak. According to Times Live of South Africa, in 2010 the Heritage Oil and Gas Ltd Company wanted to avoid paying $404 million in capital gains taxes to the Ugandan government on its $1.5 billion sale of its 50 percent interest in Uganda’s oil fields. So it enlisted Mossack Fonseca to help it quickly change its official corporate home to the tiny island of Mauritius, where it could avoid Ugandan taxes.

This behavior was both par for the course for multinational corporations and extraordinary egregious — $404 million is considerably more than the government of Uganda’s entire annual health budget.

Uganda eventually collected on the tax bill, thanks to what sounds like heroic efforts by unusually honest government officials. But most countries aren’t so lucky.

Zucman’s estimates on tax evasion and avoidance are straightforward.

First, he conservatively calculates that, as of 2014, at least $7.6 trillion of the world’s financial wealth — or about 8 percent of the world’s total financial wealth of $95.5 trillion — was “missing.”

His reasoning is that the world’s assets should be an exact mirror image of its liabilities, but are not. If the U.S. sells $1,000 in government bonds to a foreigner, that $1,000 liability for the U.S. should show up as $1,000 in assets for the foreigner’s country. However, countries’ national balance sheets record much more in liabilities than assets.

This phenomenon is due to the financial engineering industry. As Zucman explains, imagine that a British citizen holds Google stock via a Swiss account. The U.S. correctly records that stock as a liability: A foreigner owns U.S. stock. Switzerland correctly does not record it at all, since the stock is not a liability nor asset of Swiss citizens. But the U.K. incorrectly fails to calculate it as an asset of the British citizen.

Thus, Zucman writes, it is “as if Planet Earth were in part held by Mars.”

Table from “The Hidden Wealth of Nations” by Gabriel Zucman.

Zucman then calculates, generalizing from the behavior of those with Swiss bank accounts, that about 20 percent of the $7.6 trillion is voluntarily declared by its owners when they pay taxes. That leaves $6.1 trillion.

Zucman estimates that $125 billion in worldwide taxes should have been paid on the interest and dividends generated by that $6.1 trillion. To that he adds $55 billion in estate taxes, and $10 billion in wealth taxes, for the total of $190 billion.

As he acknowledges, this $190 billion is only about 1 percent of the revenue raised each year by governments worldwide. However, some regions have seen far more of their wealth moved offshore than others: While only 4 percent of the wealth of the U.S. and Asia is held offshore, 10 percent of Europe’s is offshore, as is 22 percent of Latin America’s, 30 percent of Africa’s, and 52 percent of Russia’s.

In terms of tax avoidance, Zucman points out that about a third of U.S. corporate profits, or $650 billion, are purportedly earned outside the country. Corporate tax lawyers use accounting tricks to make 55 percent of this $650 billion bogusly appear to have been generated in six low- or zero-tax countries: the Netherlands, Bermuda, Luxembourg, Ireland, Singapore, and Switzerland. According to U.S. law, the corporations don’t have to pay our corporate tax rate of 35 percent until the profits are brought back to the United States, so the profits generally stay overseas. However, if those profits did come home and were taxed at the proper rate, the U.S. corporate tax bill would be about $130 billion higher per year.

Thus tax evasion is most costly for the regular citizens of Russia, Latin America, and Africa. Meanwhile, while it’s impossible to calculate precisely, Americans and Europeans pay more of the burden of American corporations’ tax avoidance.

Top photo: View of a sign outside the building housing the offices of Panama-based law firm Mossack Fonseca in Panama City, on April 4, 2016.

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We must known (and realize) the strange conection by the legal FRIM mossack&fonsenca with the cia and nazism:(as well as the funding of soros to ICIJ) the corrupt kosher hidden hands do not care about cameron not even poroshenko and proof of that is the panama papers.

“The family of Jurgen MOssack arrived in panama(married to a cuaban lady) in the 1960’s decade. During the second world war, his father had served withing waffen-ss nazis, according to the intelligence archives of the EE.UU obtained by the soros funded ICIJ One in Panamá, Mossack offered himself to the CIA to spy on any communists in Cuba”””
As you can see the kosher hidden hands and their puppets do not care not even for cameron and it is clear. ICIJ is funded by kosher SOROS what good could come out of this PROPAGANDA SCHEME. As you can see this is the epitome of the hidden hands owning the media domestically and abroad to manipulate and propagandize people who stand for what is right as enemies. And ICIJ did not want nor kosher soros wanted to let the public know that the association FIRM known as mossack(a german) and fonseca(a jewish) last names respectively has its headquarters listed in the british own Virgin Islands. As you can see all governments mus have their own banks otherwise the rothchilds kind of klans can pretend to be not part of the kosher rothschilds networ of banks. Disgusting is short.- Alejandro Grace Ararat.

Exactly. Other estimates are $22 – $33 trillion. Moreover, the lost tax revenues here are a paltry 3%. Whats up with that? Even the chart presented here should show a minimum of $950 Billion in lost tax revenues.

Maybe the Intercept could ask their benefactor, horse’s mouth and all, but aren’t foundations themselves also basically tax shelters – where some are beneficial but many are not? I’d somehow bet most “legalized” foundation tax avoidance schemes also keep their money off shore on some relatively small island. I believe it’s called Manhattan. How are multi-billion dollar foundations, heavily investing in prime Wall Street opportunities ONLY offered to the wealthiest, not considered profitable businesses to be fairly taxed – rather than sheltered from equitable support for the societies that made them possible in the first place?

By the same token, there is a law that forbids the defacing of u.s. currency. This law was particularly important when the govmint changed the penny from copper to faux. The concern then was that people would exchange all their paper to copper pennies and hold them through the change-over then melt them down into copper ingots and sell them for way more than cost. In doing so the consequnce would be the removal of currency from circulation.

The “no-deface” law is designed to prohibit such practices that would cause the removal of currency from circulation. Back then there was also a sister law which disallowed the removal of currency from the country. At that time it was known and respected that currency needed to remain in the country and in circulation. This was a practice throughout the world at one time.

Currency circulation was once the governing principle of all economies.

That’s all changed now with the internet and world banking and trade and profiteering. The governing principle today is profiteering greed because it is now permitted to take money out of circulation and hoard. This is akin to removing blood from your body and not replacing it. Then, after you are fully drained, the blood being offered some back to you and on loan to be repaid in blood with interest in blood.

4% seems low for the US, as does the $7.6 trillion total… and yes, I did see the figures were “conservatively calculated”.

Someone in another article commented on the Tax Justice Network estimating $22 to $33 trillion in wealth missing, so the numbers here would actually fall into a “gross underestimate” category rather than “conservative”.

In any case, it would be nice if any candidates in this country would campaign on re-criminalizing some of the “legalized” tax avoidance that has been screwing most of us.

I find your “premise” to be at odds with the premise of all the Panama Papers articles about tax evasion, which I reckon gets me “wound up” due to a genetic predisposition to fairness… which, by the way, has been proven to exist in apes, chimps, monkeys and dogs.

The wisdom of cheaters and their defenders who lack that predisposition is questionable at best.
And my dog thinks so too.

A real leak of data from a law firm in Panama would be very interesting. Many rich people and/or politicians hide money in shell companies that such firms in Panama provide. But the current heavily promoted “leak” of such data to several NATO supporting news organization and a US government financed “Non Government Organization” is just a lame attempt to smear some people the U.S. empire dislikes. It also creates a huge blackmail opportunity by NOT publishing certain data in return for this or that desired favor.

Already some 16 month ago Ken Silverstein reported for Vice on a big shady shell company provider, Mossak Fonseca in Panama. (Pierre Omidyar’s Intercept, for which Silverstein was then working, refused to publish the piece.) Yves Smith published several big stories about the Mossak Fonseca money laundering business. Silverstein also repeated the well known fact that Rami Makhlouf, a rich cousin of the Syrian president Assad, had some money hidden in Mossak Fonseca shell companies.

The engineered “leak” of the “Panama Papers” is a limited hangout designed to incriminate a few people and organization the U.S. dislikes. It is also a demonstration of the “torture tools” to the people who did business with Mossak Fonseca but have not (yet) been published about. They are now in the hands of those who control the database. They will have to do as demanded or else …

I agree, and I also see this leak- regardless of how manufactured it may or may not be, as connected to the IMF currently self-destructing, and to the looming trio of global trade deals (TTIP, TiSA, TPP), all of which will make these sorts of illicit number-crunching for the sole benefit of multinational business interests, much much much easier to make happen.

If “tax avoidance” is legal, then it’s nothing more than a company NOT paying taxes to the government that the law–written by the government–says it doesn’t owe. How does this “cost” the government anything? Does anyone pay taxes they are not required by law to pay? I sure don’t…

Forget not the hidden costs. If someone or a government agency finds say a congress person’s tax dodge they own them. The buzz is that no America’s of much note appear in the Panama Papers. Two possible reasons: One wealth Americans have a homegrown system that allows not paying much tax without going offshore. Two why should the powerful hidden government give up control of major power players when their silence buys ownership by blackmail?

Though I’m heartened by this data leak, however I find the reporting agenda driven and highly questionable at this stage. Establishment elites have their hand all over this story. The list of those cherry picked for this “blockbuster” story is a veritable hit-list put together by the war-party/Neoconservative establishment. The Guardian screamed Putin! Putin! Putin! from the top of Bullshit Mountain when they themselves confirmed Putin’s name didn’t even show up in the data dump! Well I guess Putin is culpable because his long time friend was involved. If that’s the metric for accessing corruption in high places…let’s see what becomes of our political leaders in the US and UK when or if they are ever exposed. I’m not holding my breath.

GOOD POINTS
The list may have been “scrubbed” to protect the guilty and insure their future protection and cooperation. The only real questions who are the sock-puppets and who are the puppet-masters? Alternatively, just a happy family of elite wealth and power brokers that only punish member who betray the TRUST.

Or, anonymous LLCs are perfectly legal in the U.S. There may be no urgent need for Americans to use Panamanian law firms to set up shelters. Mossack Fonseca has an office in Nevada for the purpose of opening shell corps.

Maybe there’s more going on. There really could be much more to it. But, keep an eye open for the obvious.